Since 1998, all new cars have been required to have air bags on both driver and passenger sides. Statistics show that air bags reduce the risk of dying in a direct frontal crash by about 30%. Seat-mounted and door-mounted side air bags may also be included.
In an accident the air bag fills the space between the passenger and the steering wheel or dashboard in a fraction of a second. and reduces the impact on the passenger.
The bag itself is made of a thin, nylon fabric, which is folded into the steering wheel or dashboard. The sensor is the device that tells the bag to inflate. Inflation happens when there is a collision force equal to running into a brick wall at 10 to 15 miles per hour (16 to 24 km per hour). The sensors receive information from an accelerometer built into a microchip.
Image from 'How Stuff Works'.